【正确答案】Turnover Turnover has decreased from $72·025 million in 2009 to $66·028 million in 2010, a fall of 8·3%. However, this must be assessed by taking into account the change in market conditions, since there has been a 20% decline in demand for accountancy training. Given this 20% decline in the market place, AT Co’s turnover would have been expected to fall to $57·62m if it had kept in line with market conditions. Comparing AT Co’s actual turnover to this, it’s actual turnover is 14·6% higher than expected. As such, AT Co has performed fairly well, given market conditions. It can also be seen from the non-financial performance indicators that 20% of students in 2010 are students who have transferred over from alternative training providers. It is likely that they have transferred over because they have heard about the improved service that AT Co is providing. Hence, they are most likely the reason for the increased market share that AT Co has managed to secure in 2010. Cost of sales Cost of sales has decreased by 19·2% in 2010. This must be considered in relation to the decrease in turnover as well. In 2009, cost of sales represented 72·3% of turnover and in 2010 this figure was 63·7%. This is quite a substantial decrease. The reasons for it can be ascertained by, firstly, looking at the freelance staff costs. In 2009, the freelance costs were $14·582m. Given that a minimum 10% reduction in fees had been requested to freelance lecturers and the number of courses run by them was the same year on year, the expected cost for freelance lecturers in 2010 was $13·124m. The actual costs were $12·394m. These show that a fee reduction of 15% was actually achieved. This can be seen as a successful reduction in costs. The expected cost of sales for 2010 before any cost cuts, was $47·738m assuming a consistent ratio of cost of sales to turnover. The actual cost of sales was only $42·056m, $5·682m lower. Since freelance lecturer costs fell by $2·188m, this means that other costs of sale fell by the remaining $3·494m. Staff costs are a substantial amount of this balance but since there was a pay freeze and the average number of employees hardly changed from year to year, the decreased costs are unlikely to be related to staff costs. The decrease is therefore most probably attributable to the introduction of online marking. AT Co expected the online marking system to cut costs by $4m, but it is probable that the online marking did not save as much as possible, hence the $3·494m fall. Alternatively, the saved marking costs may have been partially counteracted by an increase in some other cost included in cost of sales. Gross profit As a result of the above, the gross profit margin has increased in 2010 from 27·7% to 36·3%. This is a big increase and reflects very well on management. Indirect expenses – Marketing costs: These have increased by 42·1% in 2010. Although this is quite significant, given all the improvements that AT Co has made to the service it is providing, it is very important that potential students are made aware of exactly what the company now offers. The increase in marketing costs has been rewarded with higher student numbers relative to the competition in 2010 and these will hopefully continue increasing next year, since many of the benefits of marketing won’t be felt until the next year anyway. The increase should therefore be viewed as essential expenditure rather than a cost that needs to be reduced. – Property costs: These have largely stayed the same in both years. – Staff training: These costs have increased dramatically by over $2 million, a 163·9% increase. However, AT Co had identified that it had a problem with staff retention, which was leading to a lower quality service being provided to students. Also, due to the introduction of the interactive website, the electronic enrolment system and the online marking system, staff would have needed training on these areas. If AT Co had not spent this money on essential training, the quality of service would have deteriorated further and more staff would have left as they became increasingly dissatisfied with their jobs. Again, therefore, this should be seen as essential expenditure. Given that the number of student complaints has fallen dramatically in 2010 to 84 from 315, the staff training appears to have improved the quality of service being provided to students. – Interactive website and the student helpline: These costs are all new this year and result from an attempt to improve the quality of service being provided and, presumably, improve pass rates. Therefore, given the increase in the pass rate for first time passes from 48% to 66% it can be said that these developments have probably contributed to this. Also, they have probably played a part in attracting new students, hence improving turnover. – Enrolment costs have fallen dramatically by 80·9%. This huge reduction is a result of the new electronic system being introduced. This system can certainly be seen as a success, as not only has it dramatically reduced costs but it has also reduced the number of late enrolments from 297 to 106. Net operating profit This has fallen from $3·635m to $2·106m. On the face of it, this looks disappointing but it has to be remembered that AT Co has been operating in a difficult market in 2010. It could easily have been looking at a large loss. Going forward, staff training costs will hopefully decrease. Also, market share may increase further as word of mouth spreads about improved results and service at AT Co. This may, in turn, lead to a need for less advertising and therefore lower marketing costs. It is also apparent that AT Co has provided the student website free of charge when really, it should have been charging a fee for this. The costs of running it are too high for the service to be provided free of charge and this has had a negative impact on net operating profit. Note: Students would not have been expected to write all this in the time available. Workings (Note: All workings are in $'000) 1. Turnover Decrease in turnover = $72,025 – $66,028/$72,025 = 8·3% Expected 2010 turnover given 20% decline in market = $72,025 x 80% = $57,620 Actual 2010 turnover CF expected = $66,028 – $57,620/$57,620 = 14·6% higher 2. Cost of sales Decrease in cost of sales = $42,056 – $52,078/$52,078 = 19·2% Cost of sales as percentage of turnover: 2009 = $52,078/$72,025 = 72·3% 2010 = $42,056/$66,028 = 63·7% Freelance staff costs: in 2009 = $41,663 x 35% = $14,582 Expected cost for 2010 = $14,582 x 90% = $13,124 Actual 2010 cost = $12,394 $12,394 – $14,582 = $2,188 decrease $2,188/$14,582 = 15% decrease in freelancer costs Expected cost of sales for 2010, before costs cuts, = $66,028 x 72·3% = $47,738. Actual cost of sales = $42,056. Difference = $5,682, of which $2,188 relates to freelancer savings and $3,494 relates to other savings. 3. Gross profit margin 2009: $19,947/$72,025 = 27·7% 2010: $23,972/$66,028 = 36·3% 4. Increase in marketing costs = $4,678 – $3,291/$3,291 = 42·1% 5. Increase in staff training costs = $3,396 – $1,287/$1,287 = 163·9% 6. Decrease in enrolment costs = $960 – 5,032/5,032 = 80·9% 7. Net operating profit Decreased from $3,635 to $2,106. This is fall of 1,529/3,635 = 42·1%